Freelancer Pricing Example

The freelancer

Sam is a self-employed web designer. He works alone from home.

Step 1 — Decide a target take-home income

Sam needs $3,500 a month to cover his personal life. Annual target: $42,000.

Step 2 — Add business expenses

• Software (design tools, accounting, hosting): $1,800/year
• Equipment depreciation: $1,200/year
• Co-working day pass occasional: $600/year
• Professional development: $800/year

Total business expenses: $4,400/year

Step 3 — Allow for taxes

Sam expects roughly 25% of his revenue to go to income tax and social contributions. He'll work that into the rate.

Step 4 — Realistic billable hours

A full-time year is ~2,000 working hours, but freelancers don't bill all of them. After holidays, sick days, admin, sales calls, and unpaid time:

• Realistic billable hours per year: ~1,000 (about 20 hours per week, 50 weeks)

Step 5 — Required gross revenue

Take-home + business expenses = $42,000 + $4,400 = $46,400. Divide by (1 − tax rate) to get gross revenue:

Step 6 — Hourly rate

Practical interpretation

• A "$30/hour" rate that feels okay would leave Sam well short of his target — once unbillable time and taxes are honest.
• To raise take-home without raising rate, Sam can either lower expenses, find more billable hours, or shift to fixed-price projects with better effective rates.

Lesson

An hourly rate is not just "what feels reasonable." It has to absorb downtime, business costs, and taxes — then deliver the income you actually need.

See How to Calculate Selling Price for the same logic applied to products.